The iShares MSCI Emerging Markets ETF has surged 13.95% year to date, decisively outperforming both the cap-weighted S&P 500 (1.1%) and its equal-weighted counterpart (6.54%). This strength has produced the highest number of 3-month relative highs in the EEM versus S&P 500 ETF ratio over the past two months since 2007—the last time emerging markets outperformed U.S. equities for an extended, multi-year period.
We view this as a change in market character, a development that always commands attention.
That said, today’s EEM is structurally different from prior cycles. The fund now skews heavily toward growth-oriented sectors, with technology, consumer discretionary, and communications services dominating the top holdings. In fact, Taiwan Semiconductor and Samsung Electronics alone comprise nearly 20% of the index, raising the question of whether investors are truly gaining diversification or simply expressing another AI-adjacent technology allocation. Moreover, much of EEM’s relative outperformance has coincided with stagnation in U.S. mega-cap technology—particularly software—which has weighed on the cap-weighted S&P 500.
That context forces us to ask whether we are witnessing genuine leadership rotation or simply the mechanical effects of index concentration—an argument, admittedly, that can be made in nearly any S&P 500 comparison.
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